Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Forward-Looking Statements and Associated Risks.
This form 10-Q contains certain statements that are
forward-looking within the meaning of the Private Securities Litigation Reform
Act of 1995. For this purpose any statements contained in this Form 10-Q that
are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as “may”,
“will”, “expect”, “believe”, “anticipate”,
“estimate, or “continue” or comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may
differ materially depending on a variety of factors, many of which are not
within our control. These factors include but are not limited to economic
conditions generally and in the industries in which we may participate;
competition within our chosen industry, including competition from much larger
competitors; technological advances and failure to successfully develop
business relationships.
Based on our financial history since inception, our
auditor has expressed substantial doubt as to our ability to continue as a
going concern. As reflected in the accompanying financial statements, as of March
31, 2017, we had an accumulated deficit totaling $2,995,512. This raises
substantial doubts about our ability to continue as a going concern.
Plan of Operation
BlackStar Enterprise Group, Inc. (the Company”
or “BlackStar”) was incorporated in the State of Delaware on
December 18, 2007 as NPI08, Inc. (“NPI08”). In January 2010, NPI08
acquired an ownership interest in Black Star Energy Group, Inc., a Colorado
Corporation. BlackStar Energy then merged into NPI08, with NPI08 being the
surviving entity. Concurrently, NPI08 changed its name to BlackStar Energy
Group, Inc. On January 25, 2016, International Hedge Group, Inc. signed an
agreement to acquire a 95% interest in the Company. The name was changed to
BlackStar Enterprise Group, Inc. in August of 2016.
The Company is a Delaware corporation organized for
the purpose of engaging in any lawful business. The Company intends to act as a
merchant bank as at the date of these financial statements. It currently trades
on the Pink Sheets under the symbol “BEGI”.
We intend to expend
funds over the next four quarters as follows:
3
rd
Quarter 2017
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
|
|
|
|
4
th
Quarter 2017
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
|
|
|
|
1
st
Quarter 2018
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
|
|
|
|
2
nd
Quarter 2018
|
|
·
Loans
|
·
$250,000
|
|
|
·
Operations
|
·
$50,000
|
Our Budget for operations in the next year is
as follows:
|
|
|
Working Capital – Loans
|
|
$1,000,000
|
Legal, Audit and Accounting
|
|
$100,000
|
Fees, rent, travel and general &
administrative expenses
|
|
$100,000
|
|
|
$1,200,000
|
The Company may
change any or all of the budget categories in the execution of its business
model. None of the line items are to be considered fixed or unchangeable. The
Company may need substantial additional capital to support its budget. We have
not recognized revenues from our operational activities.
-14-
Based
on our current cash reserves of approximately $3,201 as of March 31, 2017, we
have the cash for an operational budget of less than one month. We
intend to offer a private placement of stock or Notes to investors in order to
achieve $1,200,000 in funding in the next six months. We intend to commence
this offering in late Spring of 2017. If we are unable to generate enough
revenue to cover our operational costs, we will need to seek additional sources
of funds. Currently, we have
no
committed source for any funds as
of date hereof. No representation is made that any funds will be
available when needed. In the event funds cannot be raised if and when
needed, we may not be able to carry out our business plan and could fail in
business as a result of these uncertainties.
The
independent registered public accounting firm’s report on our financial
statements as of December 31, 2016, includes a “going concern”
explanatory paragraph that describes substantial doubt about our ability to
continue as a going concern.
While
our cash reserves were only $3,201, our parent company, IHG, has agreed to fund
on an interim basis any shortfall in our cash reserves. We would use our funds
to pay legal, accounting, office rent and general and administrative expense.
We have estimated $50,000 per quarter in 2017 in operations costs which
includes legal, accounting, travel, general and administrative, audit, rent,
telephones and miscellaneous.
We
received the funding to loan the monies to one borrower company, Meshworks
Media Corporation, from our parent, IHG, in the form of two loans to BlackStar
for a total of $500,000. The notes are three year notes payable at 6% interest
per year.
Results of Operations
For the Three Months Ended March 31, 2017
We had no revenues during the year ended
December 31, 2016. Due to startup and administrative expenses, stock issuances,
warrant expenses of $1,328,000 and consulting fees, we incurred a loss of
($1,064,678) for the period.
We had income (gain) on settlement of debt
for the year ended December 31, 2016 of $270,822, which resulted in a net loss
for the period of ($1,154,285) or ($0.06) per share.
During the three months ended March 31, 2017 and 2016,
we had no revenue, no cost of revenues, and no gross profit. During the three
months ended March 31, 2017, we recognized a net loss of $1,697 compared to a
net loss of $4,361 during the three months ended March 31, 2016. The net loss improving
slightly was mainly a result of $18,000 in interest income, which was then
decreased by higher operating expenses for the quarter ended March 31, 2017.
Our operating expenses included $115 in depreciation, $16,580 in legal and
professional fees, and $3,002 in general and administrative fees, for a total
of $19,697 for the three months ended March 31, 2017.
Our auditor has expressed substantial doubt as to
whether we will be able to continue to operate as a “going concern”
due to the fact that the Company has an accumulated deficit of $(2,995,512) as
of March 31, 2017, compared to an accumulated deficit of $(2,993,815) at December
31, 2016, and has not yet established an ongoing source of revenues sufficient
to cover its operating costs and allow it to continue as a going concern. The
ability of the Company to continue as a going concern is dependent on the
Company obtaining the adequate capital to fund operating losses until it
becomes profitable. If the Company is unable to obtain adequate capital, it
could be forced to cease operations.
Liquidity and Capital Resources
For the Three Months Ended March 31, 2017
At March 31, 2017, we have total current assets of $21,201
consisting of $3,201 in cash, and accrued interest receivable of $18,000.
Current liabilities at March 31, 2017 were $409,673 and consisted of accounts
payable of $7,173 and loan payable to a related party of $402,500. At March 31,
2017, we had working capital of $(388,472).
We do not currently have any consulting agreements.
We do not
currently have any outstanding debts, including promissory notes or other bank
debt. The Company recorded an expense of $1,328,000 on the
operating statement for the quarter ended March 31, 2017. The Company also used
800,000 of these warrants to satisfy an account payable to a service provider. The
value of the debt discharged in this transaction was $20,253. This transaction
was with an unrelated party giving the Company a net loss of $11,747 on the
debt relief.
-15-
On September 23,
2011 the Company received $50,000 in the form of cash as a temporary loan from
a director of the Company. The Company has elected to accrue interest at the
rate of 6% per annum non-compounding. The Company has not received any notice
of default and has continued to accrue interest on its books at the rate of 6%
each year. During the month of August 2016 the Company agreed to issue 200,000
shares of its common stock in satisfaction for this indebtedness along with all
accrued interest, and authorized the shares conditioned upon receipt of a
release.
On July 11, 2011
the Company received $200,000 in the form of cash in exchange for a promissory
note bearing interest at the rate of 6% per annum. The note does not specify
that the interest is compounding therefore the Company is accruing the expense
at a simple interest rate of 6%. The Company has not received any notice of
default and has continued to accrue interest on its books at the rate of 6%
each year. During the month of August 2016 the Company issued 700,000 shares of
its common stock in exchange for this indebtedness along with all accrued
interest.
As at March 31, 2017, our cash balance was
$3,201 as compared to $Nil at March 31, 2016. We intend to attempt to raise
capital through several sources: a) partner venture funds, b) private
placements of our stock, c) loans from our parent IHG. We do not anticipate
generating sufficient amounts of revenues to meet our working capital
requirements. Consequently, we intend to make appropriate plans to ensure
sources of additional capital in the future to fund growth and expansion
through additional equity or debt financing or credit facilities.
Our total assets at March 31, 2017 were
$522,514 compared to $265,604 as of December 31, 2016.
We do not have terms or committed sources
of capital of any type at this time. If we are able to raise additional
capital, we intend to make additional loans and would intend to use the funds
repaid from the loans to a) retire debt, and b) fund additional loans to
companies, and c) to provide operational funds.
We have been, and intend to continue,
working toward identifying and obtaining new sources of financing. No
assurances can be given that we will be successful in obtaining additional
financing in the future. Any future financing that we may obtain may
cause significant dilution to existing stockholders. Any debt financing or
other financing of securities senior to common stock that we are able to obtain
will likely include financial and other covenants that will restrict our
flexibility. Any failure to comply with these covenants would have a negative
impact on our business, prospects, financial condition, results of operations
and cash flows.
If adequate funds are not available, we
may be required to delay, scale back or eliminate portions of our operations or
obtain funds through arrangements with strategic partners or others that may
require us to relinquish rights to certain of our assets. Accordingly, the
inability to obtain such financing could result in a significant loss of
ownership and/or control of our assets and could also adversely affect our
ability to fund our continued operations and our expansion efforts.
We do not anticipate that we will purchase
any significant equipment over the next twelve months.
We do not anticipate any significant
changes in the number of employee unless we significantly increase the size of
our operations. We believe that we do not require the services of additional
independent contractors to operate at our current level of activity. However,
if our level of operations increases beyond the level that our current staff
can provide, we may need to supplement our staff in this manner.
Financing Activities
During the quarter ended March 31, 2017 the Company
received $0 from subscription agreements or private placement offerings. The
Company also received shareholder contributions in the amount of $0 in the three
months ended March 31, 2017.
On January 25, 2016 the Company received
and agreed to a purchase of its common stock from International Hedge Group,
Inc. (IHG) to purchase a 95% controlling interest in the Company. At the
closing IHG was to provide the Company with a promissory note in the amount of
$200,000 payable over a 180 day period in increments as the buyer is able to
achieve funding. As at the date of the annual report on Form 10-K the Company had
received $200,000 in cash.
During the three months ended March 31,
2017 and 2016, the Company received $Nil in private placement subscriptions for
the Company’s common stock. During the year ended December 31, 2016 the
Company received $200,000 in private placement subscriptions for the
Company’s common stock and issued 44,400,000 shares of common stock and
1,000,000 shares of preferred stock. During the year ended December 31, 2016
the Company issued 1,312,549 to consultants for services rendered and in
exchange for debt, with the shares valued at $52,504.
-16-
During the three months ended March 31,
2017 the Company received no shareholder subscriptions. During the year ended
December 31, 2016, the Company received $216,580 in shareholder contributions to
be used in the Company’s regular activities. As of
December 31, 2016, the Company has used these proceeds on the Company’s
operations and purchases.
Investing Activities
Due to an
increase in notes receivable, net cash used in investing activities was
$(250,000). Net cash provided by financing activities was $252,500 for the three
months ended March 31, 2017, and was solely due to an increase in notes payable
to a related party.
The Company used $251,659 in investing
activities for the year ended December 31, 2016, with $1,659 going to fixed
assets and $250,000 being used on Notes Receivable.
Operating Activities
During the three months ended March 31,
2017, we used $13,474 in cash for our net operating activities, compared to
$Nil used in operating activities for the same period in 2016. The increased
operating expenses are due to the Company’s ongoing startup of
operations.
During the year ended December 31, 2016,
the Company used cash in the amount of $1,296,670 in operating activities,
compared to $Nil over the previous year.
Going Concern
We have only a very limited amount of cash and have
incurred operating losses and limited cash flows from operations since
inception. As of March 31, 2017 and December 31, 2016, we had accumulated
deficit of $2,995,512 and $2,993,815 respectively and we will require
additional working capital to fund operations through 2017 and beyond. These
factors, among others, raise substantial doubt about our ability to continue as
a going concern. Our financial statements included in this Form 10-Q do not
include any adjustments related to recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should we be unable to continue as a going concern. The audited
financial statements included in the Company’s recent annual report on
Form 10-K have been prepared assuming that we will continue as a going concern
and do not include any adjustments that might result if we cease to continue as
a going concern.
Based on our financial history since inception, in
their report on the financial statements for the period ended December 31, 2016,
our independent registered public accounting firm has expressed substantial
doubt as to our ability to continue as a going concern. There is no assurance
that any revenue will be realized in the future.
There can be no assurance that we will have adequate
capital resources to fund planned operations or that any additional funds will
be available to us when needed or at all, or, if available, will be available
on favorable terms or in amounts required by us. If we are unable to obtain
adequate capital resources to fund operations, we may be required to delay,
scale back or eliminate some or all of our operations, which may have a
material adverse effect on our business, results of operations and ability to
operate as a going concern.
Short Term
On a short-term basis, we have not generated revenues
sufficient to cover our growth oriented operations plan. Based on prior
history, we may continue to incur losses until such a time that our revenues
are sufficient to cover our operating expenses and growth oriented operations
plan. As a result we may need additional capital in the form of equity or
loans, none of which is committed as of this filing.
Capital Resources
We have only common stock as our capital resource, and
our assets, cash and receivables.
We have no material commitments for capital expenditures
within the next year, however, as operations are expanded substantial capital
will be needed to pay for expansion and working capital.
-17-
Need for Additional Financing
We do not have capital sufficient to meet our growth
plans. We have made equity and debt offerings in order to support our growth
plans, to date, and may do so in the future.
No commitments to provide additional funds have been
made by our management or other stockholders. Accordingly, there can be no
assurance that any additional funds will be available to us to allow coverage
of our expenses as they may be incurred.
Off Balance Sheet Arrangements
None